Small businesses miss out on sales as Xero research reveals mismatch in consumer payment preferences

New research by Xero has uncovered a disconnect in payment expectations between small businesses and consumers in the UK when it comes to the ways consumers want to pay and how small businesses want to be paid.  

6,021 consumers aged 18 and over across the US, UK, Australia, New Zealand and Singapore were surveyed for this, in addition to 2,547 small business leaders in those countries. 

In the UK, 87% of consumers use credit or debit cards to make payments and 75% still use cash to make payments.

However, the most common payment method offered by small businesses is bank transfers (73%), followed by cash (60%), and only 55% offering the most preferred method of credit or debit card. 

Younger generations are embracing new digital payment methods, with 55% of Gen Z consumers and 49% of Millennials using mobile payments such as Apple Pay or Google Pay. 47% of Gen Z consumers only take their mobile phone to pay when they go to the shop.

Despite this growing demand, only 33% of small businesses offer Apple Pay or Google Pay.   

The findings also showed that not meeting payment preferences can have a direct impact on customer retention and revenue. 25% of consumers say they would visit another business that accepts more payment options if a business didn’t offer at least one of their preferred ways to pay.  

Kate Hayward, UK Country Manager at Xero, says: “As the UK continues to lead in Open Banking, it's crucial that small businesses recognise and adapt to the evolving payment landscape.”

“Embracing a wider range of payment options, particularly digital methods, isn't just about keeping up with trends - it's about meeting customer expectations and staying competitive in today's market.”

“The growth of digital payments is transforming the way we transact, making it an important requirement for small businesses to bridge this gap and offer the diverse payment options their customers increasingly prefer.”  

The top barriers holding UK small businesses back from adopting new payment methods are:  

• not relevant for their business (33%) - this goes up to 42% amongst sole traders 

• no clear value/advantage (32%) and 

• no demand from customers (31%) 

Of the small businesses who adopted new payment methods in the last 6-12 months, a quarter say they have seen reduced times to be paid (25%), as well as increased sales (24%), and less time chasing late payments (22%).

One third of small businesses in the UK are optimistic about the introduction of biometric authentication as a payment method.  

Bharathi Ramavarjula, SVP of Payments, Xero, says: “Understanding how different consumers prefer to pay and giving them the flexibility to pay the way they want, will help small businesses get paid faster and grow their revenue. To make it easier to collect payments, Xero is providing small businesses with more ways to get paid.”  

When it comes to paying their supplier bills, over a third of small businesses report that their top challenges are making sure there are enough funds to pay bills (36%) and keeping track of due dates so that bills are paid on time (35%).

It's not surprising then that 45% of small businesses spend at least four hours each month managing their accounts payable.   

“Managing payments and bills is really critical to help small businesses to be in a stronger position to grow their business and keep pace in what is shaping up to be a transformative decade in payments. That’s why we’re offering an embedded bill payment solution to help UK business owners and their advisors manage, approve and pay their bills seamlessly without having to leave Xero,” Ramavarjula says  

2024 RTIH INNOVATION AWARDS

Payments is a key focus area for the sixth edition of the RTIH Innovation Awards, which is now open for entries.

The awards, sponsored by CADS, 3D Cloud, Retail Technology Show 2025, and Business France, celebrate global tech innovation in a fast moving omnichannel world.

It’s free to enter and you can do so across multiple categories.

Key 2024 dates

Friday, 25th October: Award entry deadline 

Tuesday, 29th October: 2024 shortlist revealed

30th October-6th November: Judging days

Thursday, 21st November: Winners announced at the 2024 RTIH Innovation Awards ceremony, to be held at RIBA’s 66 Portland Place HQ in Central London.